Return of the Iron Triangle

The New Military Buildup

James M. Cypher

This article is from the January/February 2002 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2002/0102cypher.html

issue 239 cover

This article is from the January/February 2002 issue of Dollars & Sense magazine.

The U.S. government's Commission on National Security/21st Century, convened in October 1998, was a who's who of industry, government, and military—that is, of the country's power elite. Former Senators Gary Hart and Warren Rudman chaired the Commission. Its commissioners included Martin Marietta CEO Norm Augustine and former House Speaker Newt Gingrich. Its 29 "study group members" came from top universities like MIT and Princeton, and think tanks including the RAND Corporation, the Cato Institute, and the Brookings Institution. The Commission also enjoyed the cooperation of the Departments of Defense and State, as well as top intelligence agencies like the CIA and the National Security Agency (NSA). In 1998, the Commission began a major review of U.S. military strategy. Its aim? To redesign the institutional structure of the military for the post-Cold War era.

The Commission's 1999 report New World Coming: American Security in the 21st Century, outlined a strategy for the United States to "remain the principal military power in the world." In the coming century, the report argued, the United States will become increasingly vulnerable to direct "nontraditional" attacks—against its information-technology infrastructure, for example. It will have to intervene abroad more frequently to deal with state fragmentation or to ensure an "uninterrupted" supply of oil from the Persian Gulf region or elsewhere. And it will face rivals in its drive to dominate space. The report concluded that to ensure continued U.S. dominance, U.S. military spending will have to rise dramatically.

Big and Heavy, Fast and Light

The Clinton administration, which had overseen a dramatic decline in military spending over the course of the 1990s, basically ignored the Commission's conclusions. It now looks, however, like U.S. military doctrine will follow many of the recommendations in New World Coming.

The Department of Defense's latest big picture document, the October 2001 Quadrennial Defense Review, aims both to "restore the defense of the U.S. as the department's primary mission" and to build forces capable of moving rapidly overseas. Not to be outdone, the Army has produced two major documents outlining plans to retain the military's heavy aircraft and tank forces while developing lighter, faster units that it can deploy virtually anywhere in the world within 96 hours.

The post-September 11 era of military spending will allow the Pentagon to have its cake and eat it too—continuing major Cold War-era weapons systems and funding the cyber-age "Revolution in Military Affairs" (RMA). The RMA emphasizes high-tech warfare—communications networks, satellites, robot observation planes, smart bombs, night-vision instruments, highly mobile "light" armor, and global positioning system (GPS)-equipped soldiers—over old-fashioned heavy-weapons systems. Many Pentagon officials and major weapons contractors feared the RMA because it could disrupt the method of military contracting going back to the beginning of the Cold War—building a huge arsenal of ships, planes, tanks, and missiles to confront the Soviet "threat." Military officials had built their careers on that approach, and weapons contractors had made many fortunes from the resulting arms contracts. They feared that the RMA would marginalize them. The novelty of the Army's approach is to spend enough money to keep everyone happy, funding the "old military" and the "new military" alike.

Balancing the Iron Triangle

The "Iron Triangle" forms the U.S. military establishment's decision-making structure and includes its major interest groups. One side of the triangle includes the "civilian" agencies that shape U.S. military policy—the Office of the President, the National Security Council, the Senate and House Armed Services Committees, and civilian intelligence agencies like the CIA and NSA. A second side includes the military institutions—the Joint Chiefs of Staff, the top brass of the Air Force, Army, Marines, and Navy, the powerful "proconsul" regional commands (known as "CINCs"), and, in a supporting role, veterans' organizations like the American Legion and the Veterans of Foreign Wars. At the base of the triangle are the 85,000 private firms that profit from the military contracting system, and that use their sway over millions of defense workers to push for ever-higher military budgets.

Everyone in the Iron Triangle knew that the Bush Administration would increase military spending. The question was whether the increase would be vast enough to fund the old weapons systems, the "Star Wars" National Missile Defense scheme, and the RMA. And if not, who would pay the price? On February 13, 2001, President Bush announced that the United States would be moving beyond the Cold War model and into the RMA. In March 2001, he submitted a 2002 budget that upped military spending by only $14 billion over Clinton's 2001 budget. Many powerful members of the Iron Triangle, who had staked their careers on the old system, could now foresee their marginalization.

They were not about to go without a fight. Between March and August 2001, they struggled to save outmoded weapons systems like the F-22, the most expensive fighter plane in history, and the plan to build the unreliable V-22 Osprey aircraft, a project that then-Secretary of Defense Dick Cheney nearly killed eleven years before. It was, according to The New York Times, a battle "as intense and intemperate as any in recent memory" within the Iron Triangle.

Even before September 11, Secretary of Defense Donald Rumsfeld advocated a revised military budget with a total spending increase of $52 billion. He still favored, however, reconfiguring the military along RMA lines, reducing military units, cutting bases, and retiring unneeded weapons systems. Even while he proposed the larger spending increase, Rumsfeld's opponents in the Pentagon succeeded in portraying him as weak, unfocused, and "spiraling down." Legislators fought him on base closures, contractors resisted any reduction in lucrative weapons contracts, the Armed Services fought him on manpower reductions, and Democrats resisted the National Missile Defense program —which Rumsfeld had spearheaded. Post-September 11 emergency spending allocated an additional $25.5 billion to military objectives. In all, military spending will rise by at least $58.6 billion over 2001 levels, a 19% increase—just exceeding Rumsfeld's goal. ("Special Appropriations" will probably push the basic military budget even higher during the current fiscal year.) Now, Rumsfeld will be able to make a down payment on the RMA, while the vested interests will see plenty of funds for the old-style "legacy system" military.

Fighter-plane programs will get an incredible $400 billion in new multi-year contracts. Lockheed Martin will get $225 billion over 12 years to build nearly 3,000 Joint Strike Fighter planes for the Air Force, Marines, and Navy. According to Business Week, Lockheed also stands to make $175 billion in sales to foreign buyers over the next 25 years. Drowning in its record trade deficit, the United States desperately needs the boost to the trade balance provided by arms exports. The Joint Strike Fighter, if it brings in the expected $175 billion in export sales, may go down in history as the largest single boost to the balance of payments ever. Currently the United States controls 50% of the global arms market, with foreign military sales running at $16.5 billion in 1999. That figure will be on the rise as new weapons are delivered to Pakistan, Uzbekistan, Tajikistan, Oman, the United Arab Emirates, and Egypt.

Looking ahead, the RMA's fantastic weaponry—and its enormous costs—are only just beginning to emerge. Northrup Grumman, General Atomics, and Boeing are speeding robot airplanes into production. Other contractors are developing thermal imaging sensors to "see" targets through night, distance, fog, and even rock formations. The Navy is promoting a new destroyer-class warship, the DD-21, loaded with cruise missiles and guns capable of hitting targets 100 miles inland. Known as the "stealth bomber for the ocean," the DD-21 is estimated to cost $24 billion. Cost overruns of 300% are common, however, so there's no telling what taxpayers will ultimately pay.

The Economic Impact

Bush justified his mammoth June 2001 tax cut partially as a measure to reverse the economic downturn that began the previous March. In October 2001, he proposed further tax cuts as an "economic stimulus" package. The two tax cuts combined, however, will likely provide less of a short-term boost than the nearly $60 billion increase in military spending. Most of the June tax cut will go to people with high incomes, who tend to spend a smaller proportion of the additional income they receive from a tax cut. And a large portion of what they do spend, they tend to spend on imported luxury goods, rather than domestic goods.

Most of the proposed "stimulus" program suffers from the same problems, plus a few more. The new proposal also includes a clause allowing businesses a bigger write-off for equipment as it decreases in value. But a corporation can take the write-off while spending on capital depreciation that they would have done anyway. The same is true of the elimination of the corporate "alternative minimum tax," which had set a tax "floor" for corporations no matter how many deductions they could claim. Corporations will use these windfalls to pay off debt or to invest outside of the United States.

Compare this to the $60 billion in new military outlays. Most of this money will go to civilian suppliers who will use it to pay for domestic labor, materials, and equipment. Only a modest portion, 5-10%, will leak out of the United States to military base operations. (Even that may not be as large a "leak" as it might seem, since base employees stationed overseas often buy U.S. exports.) Moreover, because of the new emphasis on the RMA, the military will be buying more newly designed weapons than it has in a long time, and this will have a strong impact on the economy.

But will this counter the current recession? University of Texas economist James K. Galbraith has argued that the United States will need $600 billion in new spending in 2002 to pull out of the recession. However, only about $214 billion will come from increases in emergency and military spending plus the two tax cuts. Reduced interest rates will also stimulate new spending, but probably not on the scale required. If Galbraith is correct, even the massive outlays for the military will fall far short of the sum needed to turn the U.S. economy around.

What about its long-term effects? Some claim that increased military spending will drain U.S. productivity and slow long-term growth. But much of the United States' growth during the post-WWII period was stimulated by military spending. As Business Week noted in October 2001:

Defense spending on research and development has sparked much innovation. Microchips, radar, lasers, satellite communications, cell phones, GPS, and the Internet all came out of Defense Dept. funding for basic research at the Massachusetts Institute of Technology, Stanford University and national laboratories. There were breakthroughs at IBM and Bell Laboratories, and all were commercialized by Intel Corp., Motorola Inc., and other corporations.

The same is true of artificial intelligence, supercomputers, high-speed fiber optics, and many other breakthroughs. The bulk of information technologies, in fact, were developed through massive R&D investments in military technology.

The argument that military spending undercuts productivity must be seen in a broader context: Conservative economists have long argued that government spending does not increase investment because it causes an offsetting reduction in private investment—known as "crowding out." Some liberal economists have appropriated this argument to oppose military spending as a drain on the economy. That argument underestimates the structural importance of military spending and the arms industry to capitalism. The new military buildup is not likely to "crowd out" private investment, but to stimulate investment and technical innovation. The military buildup will definitely "crowd out," however, spending on public needs, such as a viable rapid rail system, public education, and a national health care system—all of which could greatly enhance productivity. More military spending will focus inordinately on information technology and other high-tech systems. More artificial intelligence technologies, global positioning systems, robot planes, and thermal imaging sensors, however, are not going to house, educate, or heal people who lack housing, education, or health care.

Big Visions, Big Plans

The current military buildup is about much more than countering the slide in the high-tech sector, or countering the current economic recession. It is about consolidating the United States' position as the only superpower. Continued U.S. dominance requires continued control of the world's most important traded commodity—energy. The United States imports 52% of the oil, and a growing share of the natural gas, that it consumes. The profits of oil giants like Shell, Exxon/Mobil, and Chevron/Texaco come from their global control of oil and gas resources. Securing this control is one of the major functions of the U.S. military.

U.S. foreign policy will focus increasingly on securing global resources, longtime observer and critic of U.S. military affairs Michael Klare argues in his new book Resource Wars. (This stands in contrast to the Cold War era, when directly economic motives were less important to U.S. foreign policy than the superpower rivalry with the USSR.) The Pentagon and other centers of U.S. power clearly view Middle East energy resources as a "vital interest," warranting massive military outlays and the export of the top-level weapons to client regimes in the region. Between 1990 and 1997, the United States exported $42 billion in arms to the Persian Gulf states, of which $36 billion went to Saudi Arabia.

This focus on the oil-exporting regions will only rise under the Bush administration. Even though the Bushes never really established themselves in the oil industry, their tilt toward "big energy" is unmistakable. George W. Bush's number-one corporate donor was Houston's Enron Corporation, the ill-fated energy trader; Vice President Dick Cheney comes fresh from his job as CEO of Dallas' Halliburton Corporation, the world's largest oil-well service company; and Condoleezza Rice served as a director of the Chevron Corporation before becoming National Security Advisor.

"Oil runs the world and the Saudis are the linchpin of oil production," a unnamed senior administration official told the New York Times in October 2001. The United States has struggled in the past to reduce its reliance on Middle East oil supplies—pressuring Mexico and Venezuela to increase production, hoping for big increases from Colombia's rich oilfields, and so on. Since 1990, the United States has reduced OPEC oil from approximately 61% of its total oil imports to 52%—so only about 27% of the oil consumed in the United States now comes from OPEC (including Venezuela). But this is not the whole story: The United States has also assumed the role of military guarantor of oil stability for Europe and Japan. The growing instability of the Persian Gulf states, in spite of the huge sums that they and the United States have committed to military defense, portends even greater U.S. military involvement in the region for the foreseeable future.

Meanwhile, near the Gulf, two alternative sources of oil are becoming increasingly attractive—the Caspian Sea region and the rest of the former USSR. U.S. oil companies are now plunging into Russia. Halliburton has 300 specialists in Western Siberia struggling to revive the Samatlor oilfield, while Shell and Exxon/Mobil are investing in a new field off Shakalin Island. Exxon has committed $5 billion to the effort over the next five years. Russia is now exporting about 3.3 million barrels a day, nearly half what Saudi Arabia exports. But if the oil giants invest in new pipelines, Russian exports could leap to 5.3 million barrels a day by 2004, according to Business Week. Much of this new oil, and huge quantities of natural gas—one third of the world's gas reserves are located in the former Soviet Union—would come from the Caspian Sea region of Central Asia, the biggest economic prize since the United States took effective control of Saudi oil in February 1945.

This makes Afghanistan, through which a major Caspian pipeline would likely run, a strategic linchpin of the global energy industry and the world economy. U.S., European, and Russian gas and oil firms have taken a major interest in the Caspian region's vast oil and gas reserves since the early 1990s. Major pipelines now carry these resources to Turkey, from which they can be shipped to Western Europe, the United States, and the rest of the world. Unocal, Pennzoil, British Petroleum, and Amoco were major participants in the Azerbaijan International Operating Company (AIOC), a large-scale project to build pipelines from the Caspian Basin to Turkey and the Black Sea. Unocal has also proposed a pipeline from Turkmenistan, Uzbekistan, and Kazakhstan through Afghanistan to India and Pakistan, and to the Pakistan coast for export to China—though the company now says it has shelved the project.

The U.S. military is now developing a long-term presence in Central Asia, which it will undoubtedly use to secure the rich supply of Caspian oil and gas. The Pentagon has been courting the government of Uzbekistan for years, giving its officers military training in the United States since 1995, and conducting military exercises in Uzbekistan since 1999. In November 2001, the U.S. military began negotiating with the government of Tajikistan to use former Soviet military bases there during the U.S. war in Afghanistan. Considering that a U.S. garrison has been permanently stationed in Saudi Arabia since the Gulf War, it seems unlikely that the U.S. military will leave either Uzbekistan or Tajikistan after the Afghanistan war.

The outcome of this high-stakes struggle remains to be seen. Russia and the Caspian region resemble the Persian Gulf region in their fragile social foundations. So shifting to the former for imported oil and gas will not eliminate the United States' reliance for energy on states with huge potential for instability. If an Afghanistan pipeline is ever built, however, it will help give U.S. and Russian oil interests leverage they have not had in decades over the Persian Gulf region, just by making the Gulf's oil supplies a much smaller part of global production. Moreover, with energy demand in developing Asia predicted to surpass that of North America by 2020, it will give the United States added leverage over these economies. The current U.S. power play in Central Asia, in short, dramatically increases the likelihood that the U.S. military will succeed in achieving the goals articulated by the Commission on National Security/21st Century— securing control of the global energy supply, and maintaining the United States' position as the world's only superpower.

James M. Cypher teaches economics at California State University, Fresno.

Resources: U.S. Commission on National Security/21st Century, New World Coming: American Security in the 21st Century, 1999 www.nssg.gov. Michael Klare, Resource Wars, Metropolitan Books, 2001. James Galbraith, "The War Economy," Levy Economic Institute, 2001 www.levy.org.